M J Antony: The cause and effect trail

One of the tricky issues on which insurance lawyers argue incessantly is the âproximityâ of a happening to the insured event. The statutes do not define it and there is very little case law in India which deals with it. The recent Supreme Court judgment in New India Assurance Co vs Zuari Industries Ltd was thus one of the significant signposts in this field.

The person who claims the insurance amount must prove that he suffered a loss due to an event which was insured. There should be a link between cause and effect. It is not as simple a question as it appears. Insurance disputes dealing with damage due to fire, water, road accidents or âperils at seaâ revolve around the cause and effect quibble.

In a famous case, a ship was carrying a cargo of rice. Rats gnawed a hole in the pipe passing through the cargo. Sea water entered the goods and damaged it. The question arose whether the proximate cause was âperils of seaâ or rats. Lord Halsbury ruled that the rats could not be blamed for the loss; it was covered by perils of sea under a marine insurance contract.

The judgment said: "The existence of the rats on the board, their thirst, the hardness of their teeth, the law of gravitation which caused the water to descend upon the rice, the ship being afloat, the pipe being dead and its capacity of being gnawed, each of these may be represented as the cause of water entering."

In the present Zuari Industries case, there was a chain of some ten events which ultimately led to the loss. There was a short circuit in the main switch board installed in the sub-station receiving electricity from the Goa State Electricity Board, which resulted in âflashoverâ producing over currents. These generated excessive heat. The paint on the panel board was charred by this excessive heat producing heat and smoke. This led to the partition developing a hole. The smoke along with ionised air travelled to the generator compartment where also there was a short circuit and the generator power tripped. This resulted in the stoppage of the supply of power to the entire plant. The chain of events ended with damage to the boiler.

When the company claimed compensation for the damage to the boiler under the fire policy, the insurer denied it after receiving reports from its surveyors. Its stand was that the flashover and fire were not the âproximate causesâ and therefore it was not liable to pay damages. There were quite a few independent stages in the accident which led to the damage to the boiler. The court rejected this view and stated that the fire was the proximate cause which led to the chain of events.

The law is that the proximate cause need not be the nearest in time or place. It may operate through successive instruments, as an article at the end of the chain moved by force applied at the other end. If there was a continuous, unbroken succession of events, so linked together as to make a natural whole, the insurer cannot avoid liability.

Since there is a paucity of Indian judgments, some other illustrative cases from England can be cited. In one case, hides and tobacco were transported in a ship under a marine insurance policy. A storm drenched the hides which turned putrid. Fumes from it spoiled the flavour of tobacco rendering it unfit for sale. The court ruled that the proximate cause of damage to tobacco was perils of sea, or storm, not damaged hides. The insurer was held liable.

This principle has applicability in many common insurance claims. In one case, a person was thrown into water by a speeding vehicle. He was dazed and died of shock. The insurance company argued that he died of shock and not due to the accident. The court rejected this contention. Another person hit by a vehicle suffered from pneumonia following the mishap. The court held that the accident was the proximate cause. Similarly, death in the surgery rendered necessary by an accident was held to be death due to the accident. Proximate cause need not necessarily be the first or the last or the sole cause of the loss. It is enough if it is the dominant, operative and effective cause.

However, the chain of events cannot be stretched too far. Talking about proximate cause, Lord Bacon said long ago that "we must look at only the immediate and proximate cause and it seems to me impractical to go back ultimately to the birth of a person, for if he had never been born, the accident would not have happened."